Monday, March 1, 2010, 2:03pm PST | Modified: March 3, 2010, 8:47 AM

What Oregon needs: The features of a state energy policy

by David Williams
Shorebank Pacific

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The behavior of the Oregon Legislature over the last several years shows that while they understand a need they do not understand the solution. In this case we are talking about an energy policy that addresses the changes taking place in the energy world and the tax requirements to address these changes.

A few years ago the Oregon Legislature enacted the Business Energy Tax Credit (BETC) with the intent that it would promote renewable energy projects in the State. The plethora of windmills along I-84 and on the Oregon side of the Oregon/Washington border outside of Walla Walla are examples of the BETCs wild success. Now, however, we are deciding that the credit is “too good of a deal” and needs to be eliminated. At the same time, the fluctuating nature of wind power production makes us much more dependent upon hydro projects to provide backup power when the wind doesn’t blow. The dependency of turning hydro on and off has adversely impacted the irrigation systems and fish recovery programs, which are also dependent upon hydro system.

Oregon lost $20 million dollars in an ethanol plant in Clatskanie. Ethanol made sense when gasoline was at $4.00/gallon but was not profitable when gas fell back to $2.50/gallon. Dependency on the pricing of fossil fuels has limited the effectiveness of renewable energy projects for the last 35 years beginning with our first real run-in with fossil fuels during the shortages of 1973-74. Until we set a base price on petroleum we will continue to have projects that are financially viable but only with tax support.

Such piecemeal projects, while intended to be beneficial, have had unintended negative impacts because we do not have an energy strategy for Oregon or the region.

We need such a strategy so that instead of projects being promoted one at a time, the concept can be promoted and then the projects get developed as they can be afforded. An effective energy strategy creates:

- Stability of direction and consistency of approach so that the investment community can see consistency over the life of the investment

- Stability over the life of the generation technique

- Stability of revenue and investment sources

The Oregon Legislature needs an energy strategy that stipulates the following:

- Sets a benchmark for where we need to be with our dependence upon petroleum based products.

- Sets a price for petroleum at $4.00/gallon and tax the difference between that price and the distributor price and apply those tax dollars to alternative projects. This should be done in collaboration with the other states in the region.

- Recognizes that all energy projects require long-term planning and that consistent state policy is essential to enticing developers to take projects knowing that the state’s participation will be there as planned.

- Establishes a mix of energy-generation systems so that the impact of fluctuating systems like wind, geothermal, wave and hydro can be balanced with continuous systems like nuclear, coal and natural gas.

- Establishes the extent of dependence upon alternative fuels and recognizes the linkages between the alternatives.

- Takes a defined position on hydroelectric as a storage system and the impact of wind, solar, and wave energy on that system.

- Sets an expected limit of power usage per person.

- Sets a matrix of pricing for alternatives so that the incentives are phased out as production increases.

Such a strategy creates a framework that encourages the development of new projects without falling victim to the fluctuation of fossil fuel pricing. Within this established framework of energy systems, new projects can be promoted which enhance the overall system. Developers can know that the projects that they are working on will get the support of the state as expected and a base is developed that allows us to set energy generation structure without the fossil fuel producers interfering in the project by cutting the price of their product to a level where the alternative is no longer necessary.

The strategy needs to recognize that we can’t do this in isolation. The strategy must expand beyond Oregon so that it has substance and power. The strategy also needs to include a role for Oregon’s generation in the larger electric grid and a stated position in the role of conservation — especially in construction where 40% of the energy is consumed in the building process.

Policy sets this framework. What is common in the legislature today are groups appealing to the state to “let my project get funding because it fills a specific need.” I have seen this behavior in both the Oregon and Washington legislative hearing process — it is attacking the wrong issue.

The state should be setting the framework that provides for the project to go or not depending upon meeting the energy framework set by the state and the developers’ ability to raise capital. The capital will be attracted to a project based on its merit and knowing the framework will not change. And the fluctuations of the system based on the whim on the fossil fuel producers will be reduced.

David Williams is the CEO of ShoreBank Pacific. Visit ShoreBank Pacific at www.shorebankpacific.com.